Observations by an academic researcher on the use of “open”-ness as a competitive strategy, with a particular interest in coping with the commoditization of information goods and technologies in an Internet-enabled world.

Thursday, January 1, 2009

With their contract expiring Dec. 31, Viacom’s MTV Networks division was applying pressure to raise the prices paid by Time Warner Cable for its 20 cable channels (including Nickelodeon, Comedy Central and TV Land). It was applying pressure (as other content providers do) by telling subscribers they were about to lose Dora the Explorer and their other prized content.

The cable operators want more money because the rest of their businesses are in decline: ratings are down, and with that (and the soft economy and many substitutes) so are advertising revenues. Originally, Time Warner was standing firm. The company website proclaimed:

MTV’s demands are outrageous and would force our customers to pay millions of dollars more per year. MTV’s networks are not worth so much more today than they were yesterday, especially given the fact that their ratings are mostly declining in recent years.

Much of their popular programming is also available for free online. In this economy, we don’t believe it’s appropriate to ask our customers to pay so much more for programming with declined ratings or that's available for free.

Christmas is over, but Viacom is still playing Scrooge, threatening to pull its MTV Networks off of Time Warner Cable at midnight tonight unless we ask our customers to pay exorbitant price increases.

Viacom claims their demands equate to “pennies,” but that is misleading and insulting to our customers, from whom Viacom is trying to extort another $39 million annually – on top of the hundreds of millions of dollars our customers already pay to Viacom each year. That doesn’t sound like pennies to us. Demanding that our customers pay so much more for these few networks would be unreasonable in any economy, but it is particularly outrageous given the current economic conditions.

At the last minute, the two sides averted an impasse. Indications are that Time Warner agreed to some form of price increase. That’s really too bad.

Essentially, there is no price competition for content: cable companies pay more money and assume they can pass it on to subscribers. Consumer buying power is weakening, other costs are falling, but cable companies are agreeing to price increases paid for with Other People’s Money.

Squeezing money out of cable TV systems and their subscribers is only a short-term fix. Certainly the TV/movie industry has consumers habituated to consuming video entertainment over the boob tube, which may continue to work for the Boomers and Gen X types. However, the Millennials are already taking advantage of the increasing supply of free online content at Hulu and elsewhere, which means that in the next round of household formation, many homes will be going without cable or satellite TV.